Ag groups seek a more competitive rail environment

by Jay Sjerven
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WASHINGTON — Twelve agricultural producer and trade organizations recently urged the federal Surface Transportation Board to improve its regulatory structure to foster a more competitive rail environment. The organizations issued a joint statement in response to a proceeding launched by the S.T.B. to assess the state of rail competition and possible policy initiatives to promote additional rail-to-rail competition.

The statement’s signatories included the National Grain and Feed Association, the Agricultural Retailers Association, the National Association of Wheat Growers, the National Barley Growers Association, the National Chicken Council, the National Corn Growers Association, the National Cotton Council, the National Council of Farmer Cooperatives, the National Oilseed Processors Association, the Renewable Fuels Association, The Fertilizer Institute, and the USA Rice Federation.

The agricultural groups asserted railroads were very profitable and there would be “few risks to general rail profitability if the S.T.B. chose to make some reasonable adjustments in moving toward a more competitive environment.”

The statement noted there are about 15,000 agriculture-related shipping points in the United States with railroads accounting for about 35% of the physical movement of agricultural products by volume compared with 50% for trucks and 15% for barges. The groups said many agricultural facilities, particularly those involved in longer-haul shipments where trucks do not provide a competitive alternative, are disadvantaged when competition between railroads is less than that required to discipline market behavior.

The agricultural industry itself supplies more than 50% of the rail cars used to ship grain and grain products, the groups said. But shipper/owners of those cars “have little say in new regulations and associated costs imposed on such equipment” by rail carriers.

The organizations noted agricultural rail rates increased by 30% from 2006 to 2010 compared with 24% across all other product lines (such as coal, chemicals and intermodal shipments).

“While many rail rates are not an issue, some are, and it appears to be a growing problem in some areas of the country” where competition with other transportation modes is lacking, the groups said.

The organizations said even the S.T.B.’s simplified rate-challenge process generally does not provide a viable avenue for agricultural shippers to pursue, given the cost of bringing a case (estimated at about $250,000), the uncertainty of prevailing and the total $5 million maximum benefit over five years that would result if the shipper prevailed.

“Given the risk of losing, plus the likelihood that even if a case is won, the benefit might be less than the maximum allowed, we see few, if any, situations where agricultural shippers will find the (so-called three-benchmark simplified small rail) rate case approach appealing as it now stands,” the groups said.

The joint statement called on the S.T.B. to consider establishing a percentage-based revenue-to-variable cost threshold, under which shippers could challenge switching charges imposed by carriers. The groups noted switching charges, which allow shippers to switch traffic to the lines of a competing carrier, have increased from $100 to more than $500 per car in the last three years, creating an economic barrier to competition. Specifically, the groups proposed that once the switch charge exceeded a percentage-based regulatory threshold, rail carriers should bear the burden of proving that the charge is reasonable.

Numerous other business practices employed by railroads they deemed unfair, also were cited by the groups. The practices enumerated included “exorbitant” charges assessed for overloaded railcars; penalties imposed for accumulations of snow and ice on railcars in transit as a result of weather conditions beyond shippers’ control; requirements that shippers indemnify carriers for any loss and damage to agricultural facilities, even those caused by the carrier or its employees; minimum-volume commitments imposed by railroads as a precondition for obtaining an assured supply of rail cars; and fuel surcharges instituted by some carriers that the groups said far exceed the actual level of fuel price increases they incur.

The groups also pointed to so-called “mileage equalization” practices imposed by railroads on tank cars used to transport vegetable oils, corn syrup, liquid feed ingredients and other agricultural products. These practices allow carriers to route shipper-owned tank cars “excessively long” distances for the logistical convenience of the railroad. But the carriers’ mileage payments to shipper car owners for use of the cars reflect only the most direct mileage route, forcing the owner to incur the additional uncompensated costs for rail car maintenance, repair and depreciation, the groups asserted.

The S.T.B has scheduled a public meeting June 22 as part of its rail competition assessment.

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